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Most of us who dabbled in crypto-currency made money. I did, too. If you have put in your own money into crypto-currencies prior to 2018 and didn’t make money, you’re doing something really, really wrong.
I’m not going to talk about how much I’ve made yada-yada yada-yada. This is way too early for this sort of talk. What I would like to talk about it is this.
Performing some sort of index investing within the crypto-currency universe.
See how the crypto market cap is ballooned in the last year alone?
An older post with a better perspective as crypto-currencies are probably $700+ billion nowadays.
So, if you want to get your feet wet and have a little exposure to this new asset class, there is sadly nothing good that can do it for you now. Not easily, anyway.
Private Crypto Funds
Private funds? There are some.
In the US, there is the Bitwise HOLD 10 Private Index Fund and it tracks the cryptocurrencies in the HOLD 10 Index, which is a basket of the largest coins, weighted by inflation adjusted market capitalization and rebalanced monthly. However, it is currently only available to US accredited investors.
On a side note, SMRT Feedback has started a fund called Currency X on crypto-currencies that was over-subscribed.
Is There ETFs?
ETFs? Nowhere close to being launched due to regulatory concerns.
This area is being actively pursued but as far as I know, there isn’t any significant progress.
The Do-It-Yourself Route
There are some harder ways to do it, but you’re going to have to learn and get your hands dirty. It will be easier for some to grasp the concepts. Someone on Reddit once said this : “I’m a big believer in having a strong technical and computer science base because it helps you learn how to learn, learn how to think, and problem-solve.” I fully agree. I’m blessed to have a CS background plus an interest in finance, which is great in the current environment that we live in.
Start with the basic stuff first. For the less inclined, I drew a simple diagram to share with some folks of mine about this whole crypto-currency thing.
It might not even be 100% accurate but for the novice, it will do enough to illustrate the big picture. Four years of blogging taught me that time and again, I tend to assume wrongly what the general population already knows, and glossing over stuff is usually bad. I do, however, assume that you are familiar with the most basic crypto-currency terms.
Consider yourself warned as this is merely one way to do it.
On the left side of the diagram, most of us in Singapore are fairly familiar with fiat money, banks (not true for many in developing countries) and credit cards. That’s our world that we live in.
To dabble in the world of crypto-currency, we need fiat-to-crypto exchanges (such as Coinbase or Gemini) to convert our money into Bitcoins or Ethereum etc.
Exchanges can be funded in different ways – such as via direct bank transfers, digital wallets like Xfers (think of it as PayPal) or credit cards. The problem with this part (you can see from my diagram that the arrows don’t quite reach the targets) is that crackdowns have largely disabled direct transfers to Singaporean bank accounts dealing with crypto-currency. Coinhako, a Singapore-based exchange, cannot accept bank transfers now and relies on Xfers.
So, what’s the problem? Xfers is buckling under heavy load and according to their Facebook post, they are “reaching their S$30 million limit to operate as a Relevant Stored Valued Facility in Singapore.” That’s another no-go for the near future.
Your next best bet is direct transfers to bank accounts not based in Singapore for exchanges like Gemini or Quoinex.
Oops – another problem. Global exchanges are under assault by the herd (good read by GMGH) and ID verification is taking days if not weeks to process. Bummer. Do apply to a couple of exchanges to cater for redundancies.
Your last resort while waiting for verification is to use Coinbase (supposedly the fastest option but funding by Xfers is down due to above reason) by paying with credit cards and be subjected to a measly S$200 limit per week. According to the Coinbase website, limits are refilled gradually over the course of one week from the time your order is confirmed – or about S$28.50 each day.
If you signed up via my Coinbase referral link, once you buy or sell US$100 (S$132) of digital currency or more, you and I will both get US$10 (S$13) of free bitcoins.
Lastly, I don’t gain anything out of this – but my personal preference is a credit card from Citibank because their transactions tend to reflect the fastest on banking platforms. On the plus side, there is a separate transaction listing for forex conversion fees (similar to what I see for Uber rides). Hmm, I wonder if these transactions earn miles?
Alright. Once you get hold of some Bitcoins or Ethereum, you can then transfer them to crypto-to-crypto exchanges.
Binance is my preferred option but GMGH has kindly pointed out they too have temporarily disabled new users sign-ups due to the on-onslaught of new and hot money flowing in. I’m sure other exchanges are up and running but I haven’t been checking on them.
We’re now done with a tough part? Still with me here? Great!
If you think of a coin as a stock, can we then replicate the idea of an ETF using another coin in the crypto world?
Crypto20 : Tokenized Crypto Index Fund
Yes, of course! One example is the Crypto20 which calls itself the First Tokenized Crypto Index Fund but it isn’t listed on any crypto exchange yet after completing its initial coin offering last November. Gonna be on HitBTC in a few days, it seems.
Is there other options?
Iconomi : Digital Assets Arrays
Say hello to Iconomi (ICN) – a digital asset management platform. Think of a digital asset as basically a coin like Bitcoin, and DAA (Digital Assets Arrays – haha who uses the word Array in real life but a CS guy) are comprised of various combinations of digital assets. Yep, sort of like an ETF if you view a coin as a stock.
They have more than ten DAAs listed on their platform but note that most importantly, none of them are truly passive index investing no matter what they say. Crypto-currencies are simply too new and volatile, and none of the managers seem to even follow a fixed methodology (rules are still changing) in terms of re-balancing.
To be honest, in such a situation, it is worth considering that an active manager might be a better option because it is easier to exploit the inefficiencies vs a mature market.
One such option currently available is Iconomi’s flagship DAA called Blockchain Index (BLX) which holds a total of 27 coins in various weightage.
Blockchain Index (BLX) is a passively managed (hahaha) DAA investing in established blockchain-based projects with active beta components. The DAA is market-cap weighted, adjusted for trading volume, and free float. Blockchain Index is a well diversified vehicle keeping a finger on the pulse of the blockchain economy. The focus of the investment selection is on nascent projects with potential strategic importance in the future distributed economy.
Yes, the management fee is 3% but that’s the crypto world right now. Not the best option, but perhaps the lesser evil if you would like to get some exposure.
You might ask, how does BLX compare against the crypto world?
CRyptocurrency IndeX (CRIX)
Let’s use CRIX. CRyptocurrency IndeX (CRIX) is a benchmark for the crypto-currency market, and a collaboration project from Humboldt University Berlin Germany, SKBI at our very own Singapore Management University, and CoinGecko.
Their top 15 coins from BLX DAA page :
// Hey it includes my top 3 picks but pls don’t ask me what they are 🙂
Holding / Category / Rebalancing Weight / Current Weight
Bitcoin (BTC) Value 15.00 % 8.80 %
Ethereum (ETH) Platform 14.17 % 11.72 %
Dash (DASH) Anonymity 12.89 % 9.64 %
Monero (XMR) Anonymity 12.68 % 8.55 %
Qtum (QTUM) Platform 6.90 % 11.56 %
Waves (WAVES) Platform 6.50 % 3.57 %
Lisk (LSK) Platform 6.21 % 8.81 %
OmiseGO (OMG) Decentralized Exchange and Payments Platform 5.62 % 5.72 %
Steem (STEEM) Media 2.41 % 4.32 %
Augur (REP) Prediction 2.02 % 2.38 %
Golem (GNT) Decentralized Computing 1.75 % 2.27 %
Siacoin (SC) Storage 1.60 % 4.27 %
DigixDAO (DGD) Value Gold 1.47 % 1.22 %
Factom (FCT) Audit 1.33 % 1.62 %
MaidSafeCoin (MAID) Storage 1.27 % 1.24 %
Is it safe? For now, you would just have to take their word for it. Iconomi could shut the whole thing down and flee with your money and there would be zero legal recourse whatsoever. The latest news is that insurance coverage and audits are coming later this year.
Do I have money on BLX? Yes.
I Want In. What Can I Do?
If you’re late to the party, you know what you need to do. Not much of a choice huh?
Sign up at exchanges, and wait patiently. If you’re lucky, Coinbase will verify you in a day or two and you can get started with a credit card while waiting for the rest of the exchanges. A quick note their high fees, though.
Okay, I get it. Maybe you want a little hand holding so this is the short version of the blog post.
- Sign up for a Coinbase account.
- Verify your ID at Coinbase. [*KYC]
- Link a credit card to your Coinbase account.
- Buy Ethereum (ETH) at Coinbase using your credit card.
- Sign up for an Iconomi account.
- Verify your ID at Iconomi. [*KYC]
- Transfer/Send your Ethereum from Coinbase to your Iconomi’s Ethereum (ETH) deposit address.
- Wait for confirmation that Ethereum (ETH) is successfully deposited.
- Buy BLX with Ethereum.
* Know your customer (KYC) is the process of a business identifying and verifying the identity of its clients. The term is also used to refer to the bank and anti-money laundering regulations which governs these activities.
Well that’s it! My idea of how the crazy combi of index investing and crypto could work. My practical guide to crypto-currency index investing is high risk and dangerous. It is not too tough to get started, but it is difficult to truly understand the underlying concepts. I’m learning new things every single day.
I have conveniently left out relevant topics such as securing your crypto assets, password managers and best practices e.g. your digital assets could disappear if sent to a wrong address etc. Crypto-currency assets class form a very small percentage of my portfolio size.
I did a quick post over at my index investing facebook group and it seemed like that are people both for and against index investing against this brand new asset class. Good points on both sides, so time will tell.